Owning a home is accompanied by several expenses. These expenses are advantageous as there are benefits associated with them, including tax breaks. It is common as a homeowner for one to ask themselves, is homeowners insurance tax deductible? The truth is, as long as you itemize your taxes and keep track of your expenses annually, homeowners insurance is generally not tax-deductible. This also applies to other types of personal home insurance, such as liability coverage, hazard coverage, earthquake insurance, or flood insurance.
A write-off is something every policyholder will wish to take advantage of. Policyholders can claim a deduction on their insurance premiums depending on how they use their home- say if they are landlords and rent out their homes or work from home. Other home-related deductions such as property tax deductions, home office deductions, energy efficiency deductions, and mortgage interest deductions can be included in your tax return. Homeowners can also enjoy tax deductions in the event they incur a loss or damage on their home or personal property not covered by their insurance companies or if the insured losses were not fully compensated. Earthquake and flood losses are among uninsured losses; you can claim tax deductions to reduce your taxable income. Below, home insurance is reviewed with the main focus on homeowners insurance tax deductions.
Mortgage Points Deductions
Since a mortgage might be one of the most significant debts you are having, you should consider buying mortgage points to save your money throughout your mortgage and deduct some of the interests paid on your loan. Mortgage points are discount points purchased at the time you close your mortgage. One mortgage point is equivalent to 1% of the total mortgage amount. If your home is, let’s say, $300,000 and you want to purchase one mortgage point, you will have to put down an additional $3,000 at closing. The advantage of mortgage points is the fact that they reduce your mortgage interest rate. Your interest rate reduces for every mortgage point you purchase. Homeowners insurance policyholders can claim the total amount on their taxes the same year they buy mortgage points depending on the policy stipulations, though most homeowners insurance company’s policies meet these standards.
Home Office Deductions
If homeowners work from their homes, they can deduct some amount of their insurance premiums from their taxes. The amount deducted is calculated by determining the space in your home occupied by the office. If 10% of your home space is used for office space, then 10% of the total amount you paid in insurance premiums for the year would be subtracted from your taxable income. It can also be determined by evaluating the actual expenses incurred for operating your business from home. Such expenses include utilities, internet, maintenance, and other costs. You will require proper documentation to back up your claim.
If you rent part of your home or invest in real estate, you are eligible to deduct the rental property from your taxes. This is because renting your home is termed employment, and the generated income is taxable. Therefore, spending money to insure the same property is counted as a business expense. When filing tax returns, there is a form called Supplemental Income and Loss. This is where you indicate the amount you collected for rent that year and whether the home is your primary residence or not.
Today the popularity of energy-efficient homes is on the rise, with most homewoners choosing to perfom upgrades that aim to save energy in their homes. By renovating your home to become more energy-efficient, you save on utility bills and save on taxes. You can claim tax credits when implementing geothermal, fuel cell, and solar systems in your home. Some of the energy-efficient upgrades qualifying for this tax credit include solar panels, solar-powered water heaters, geothermal heat pumps, and wind turbines.
Tax deductions for claims not fully covered by the insurer
If your claim is declined, you may not be totally unlucky; you can deduct it as a casualty loss. This refers to a deduction of the affected property’s actual value on your tax returns. It also applies to personal belongings in case an insurer denies a personal belonging claim you made for recently acquired expensive items. But you should note that stipulations limit who is legible to claim for a casualty loss deduction.
To get a deduction on a loss of personal belongings, you must promptly file a claim with your homeowners insurance company, mostly within 30 days of the occurrence. The cause of the damage must also occur in a federally acknowledged calamity to qualify for a tax deduction.
In conclusion, many rewards come along with homeownership. You not only make a future investment, but you also own a place to call home. This article shows the different ways homeowners with homeowners insurance can enjoy tax breaks.